Agricultural credit stands as a fundamental component for driving agricultural development initiatives. Following independence, the Government embraced the institutional credit approach, utilizing various entities such as cooperatives, commercial banks, and regional rural banks to furnish farmers with adequate credit at favorable interest rates. As agriculture underwent modernization in the post-green revolution era, the demand for agricultural credit surged.
Yearly, the government sets higher credit targets for the agricultural sector, aiming to double farmers’ income by 2022. Notably, agricultural credit disbursement has consistently surpassed set targets each fiscal year.
Credit plays a pivotal role in boosting farm productivity. Institutional credit mechanisms also serve to disconnect farmers from non-institutional sources, where they often resort to borrowing at exorbitant interest rates.
Since the Green Revolution, the investment prerequisites for cultivation have steadily risen. Nearly all inputs, including seeds, pesticides, fertilizers, machinery like motor pump sets and tractors, and various services such as machinery rental, are procured from the market.
Types of agricultural credit
Considering the timing and purpose of farmers’ credit needs in India, agricultural credit can be categorized into three primary types:
- Short-term credit: Indian farmers often require credit to address short-term needs such as purchasing seeds, fertilizers, and paying wages to hired laborers, typically for a period of less than 15 months. These loans are usually repaid after the harvest season and are commonly referred to as short-term credit. In fact, the proportion of such loans tends to be quite high.
- Medium-term credit: This category encompasses credit needs for medium durations, ranging between 15 months and 5 years. It is sought for purchasing assets like cattle, pumping sets, and other agricultural equipment. Medium-term credits typically involve larger loan amounts compared to short-term credit.
- Long-term credit: Farmers also require finance over extended periods, exceeding 5 years, primarily for acquiring additional land or making permanent improvements on existing land, such as sinking wells, land reclamation, or horticultural ventures. Long-term credit necessitates ample time for loan repayment due to the substantial nature of the investments involved.
Sources Agricultural Credit
Agricultural credit sources can be broadly categorized into institutional and non-institutional channels.
- Non-institutional sources encompass moneylenders, traders, commission agents, as well as relatives and landlords.
- Institutional sources, on the other hand, comprise cooperatives, commercial banks including the SBI Group, RBI, and NABARD.
- Major institutional credit agencies in India include Commercial Banks (CBs) and Regional Rural Banks (RRBs), primarily sponsored by Scheduled Commercial Banks and state governments. Cooperative Banks are also significant players, further divided into rural and urban cooperatives.
- Among these, Scheduled Commercial Banks are the largest credit providers, followed by Cooperatives and Regional Rural Banks. Notably, following the nationalization of commercial banks in India in 1969, their collective share in institutional credit to the agricultural sector has consistently increased.
Government steps for providing Agriculture Credit to Farmers
Kisan Credit Card (1998-99):
Introduced in 1998, the Kisan Credit Card (KCC) scheme aimed to offer short-term formal credit to farmers. Both owner cultivators and tenant farmers could access loans under this scheme to fulfill their agricultural requirements at favorable interest rates. Oversight of the scheme lies with the RBI for Scheduled Commercial Banks (SCBs) and with NABARD for Cooperative Banks and Regional Rural Banks (RRBs). Recently, the Cooperative sector has come under the purview of RBI. The 2018-19 budget extended this provision to include Animal Husbandry and Fisheries.
Agriculture Market Infrastructure Fund (AMIF) – NABARD:
This fund, announced in the 2018 budget, targets the development and enhancement of rural agriculture markets. It focuses on the improvement of infrastructure in 22,000 Gramin Agricultural Markets (GrAMs) and 585 Agricultural Produce Market Committees (APMCs). Currently, GrAMs are developed using funds from MGNREGA. The scheme operates on a demand-driven basis, offering subsidized loans to state/UT governments for the development of marketing infrastructure in APMCs and 10,000 villages, with NABARD administering it.
Interest Subvention Scheme:
Implemented jointly by NABARD and RBI, the Interest Subvention Scheme aims to provide short-term credit to farmers at subsidized interest rates. Introduced during the Kharif season of 2006-07, the scheme remains operational for the years 2018-19 and 2019-20.
NABARD Fund of Rupees 700 crore VCF for Rural Agriculture Startups:
Nabventures, a subsidiary of NABARD, launched this fund with a proposed corpus of Rs 500 crore, with an additional provision for an oversubscription of Rs 200 crore, known as the greenshoe option. The fund aims to support rural agriculture startups.
FAQs
1. What is agricultural credit?
- Agricultural credit refers to financial assistance provided to farmers and agricultural businesses to support their operations, including purchasing inputs, equipment, land, and covering operating expenses.
2. Who provides agricultural credit?
- Agricultural credit can be extended by various institutions, including commercial banks, cooperative banks, regional rural banks, agricultural development finance institutions, and government agencies specialized in rural and agricultural finance.
3. What are the types of agricultural credit?
- There are two main types of agricultural credit: short-term and long-term. Short-term credit typically covers seasonal expenses such as seeds, fertilizers, and labor costs. Long-term credit is for capital investments like land purchase, farm machinery, and infrastructure development.
4. How are agricultural credit rates determined?
- Agricultural credit rates are influenced by factors such as prevailing interest rates, inflation, government policies, risk assessment of the agricultural sector, and the borrower’s creditworthiness. In some cases, governments may subsidize interest rates to promote agricultural development.
5. How does agricultural credit benefit farmers and the economy?
- Agricultural credit facilitates smooth functioning of agricultural activities by providing timely finance, which ensures adequate inputs and smooth operations. This contributes to increased agricultural productivity, income stability for farmers, rural development, food security, and overall economic growth.
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